See my response to this week’s National Journal topic “Gas Price Conundrum” moderated by former Michigan Governor Jennifer Granholm.
Lawmakers seem to forget the laws of market economics and that U.S. oil producing firms are “price takers,” not “price makers” in a global market. They are not members of the price-fixing body, OPEC, whose oil production decisions are made, at least in part, collectively, and heavily influence the world market supply.
Oil and gas companies are already investing in identifying and producing new energy sources, spending hundreds of billions over the last 25 years on new supplies of oil and natural gas. These investments are outpacing earnings by these companies. Rising oil prices encourage companies to invest more in finding new reserves and to increase production from existing fields. Yet, lawmakers still want to punish them by removing the deductions that many other sectors of the economy enjoy.
Increasing taxes on oil company revenues will only reduce the desire and ability of firms to find and produce more oil. One of the axioms of public finance scholars is that if you tax something, you get less of it. The auto industry is already making great strides in making autos more fuel efficient without mandated MPG standards from EPA.
New technology for gasoline powered vehicles has substantially increased to 35 to 40 mpg for many smaller vehicles, without a government mandate. Federal subsidies to induce consumers to purchase plug-in electric vehicles(PEVs) are not a good use of taxpayer dollars due to their short driving range, high cost and the expense of installing fast charging systems for residences and commercial areas. Fuel efficient gasoline powered vehicles and even hybrids are a better bet at this stage to slow growth in demand for gasoline.